Business objects to a more activist NPS

National Pension Service's headquarters in Jeonju, North Jeolla. The NPS is Korea's largest institutional investor. [YONHAP]

The possibility of a more activist National Pension Service (NPS), the country's largest institutional investor, has the business community united in opposition.

The Ministry of Health and Welfare, which operates the NPS, discussed last year the shifting of the decision-making process for legal action against companies from the Fund Management Committee to the Stewardship Responsibilities Committee, where the majority of the members are independent.

A change could result in an increase in the number and scope of shareholder derivative suits.

The final decision is to be made during the Fund Management Committee meeting headed by the Minister of Health and Welfare next month.

Its discussions will come in the midst of a major embezzlement case involving Osstem Implants and significant losses for retail and institutional investors in the company.

NPS owns 2.2 percent of Osstem Implant valued around 45 billion won.

A derivative suit against the management or directors of the company would be a first for the NPS.

The Fund Management Committee has members from a wide range of backgrounds, including government officials, business owners, workers, the self-employed, consumers and farmers. The diversity and varied interests can slow the decision-making process.

The Stewardship Responsibilities Committee has nine members, three of which are NPS employees and the others being professionals with relevant experience, such as university professors, lawyers and accountants. They may be able to work faster when contemplating legal action against companies.

On Monday, a number of business groups — including the Korea Chamber of Commerce and Industries, the Korea Enterprises Federation, the Korea International Trade Association, the Federation of Middle Market Enterprises of Korea and the Korea Listed Companies Association — released a statement opposing the NPS move, claiming it was tantamount to punishment for corporate Korea.

The businesses argued that a derivative suit regardless of the results could have a major impact on the credibility and reputation of a company, and the company may not be able to recover even if they win the legal battle.

"Companies, which pay 42 percent of the overall pension insurance, have a direct interest in NPS shareholder derivative suits," the statement said. "Yet the Ministry of Health and Welfare and the National Pension Service have not even gathered opinions from the business community."

The NPS owns at least 5 percent of 300 companies.

"A shareholder derivative suit is possible even when holding 0.01 percent in a listed company, and 1 percent for corporations," said an official in the business community, who requested anonymity. "Managements have to work in fear of legal actions."

The business community official raised doubts about the expertise and the neutrality of the Stewardship Responsibilities Committee, especially when there is no other body that could check the committee itself.

BY LEE HO-JEONG, KIM KYUNG-MI [lee.hojeong@joongang.co.kr]